With leases on over 30 iron ore mining leases, which account for 50-55% of Odisha’s and 10% of other states’ production, expiring in March 2020, domestic steel makers will face a disruption in their production, credit ratings agency Crisil said in a research report.
The report said that with the expiry of iron ore mining leases nearing, there is some uncertainty about the completion and scheduling of auctions for G2 exploration licences.
Three possible scenarios could emerge, it said. In the base case, assuming auction takes place in the third quarter of 2019-20, prices are predicted to go up 15-20% in 2021 with limited supply disruption. If leases are extended by two-three years for existing mines, there will be no supply disruption.
“However, if there is a delay in auctions, which are open to both captive and merchant miners, large steel players shall bid higher premiums to ensure long-term supply leading to higher iron ore costs for them. The entire supply of 60 million tonne will come to a halt until new clerances are received leading to iron ore imports at higher prices,” the report said.
In fiscal 2019, India is estimated to have produced 207 million tonne of iron ore, 65-70% of which was by merchant miners and the rest by captive steelmakers. Odisha alone is estimated to have produced 114 million tonne, or more than half of India’s iron ore production. Of this, 70% was produced by merchant miners and the rest by captive steelmakers.